These Are the Three Best Ways to Invest in Gold
Investors often ask how to invest in gold. Saying the very least, there are several ways to invest in gold, but each alternative has its own benefits and drawbacks.
Below, we have identified the three best ways to invest in gold.
1. Gold Bullion
Buying gold bullion (physical gold) could be the easiest way to invest in the precious metal. The value of the gold that you hold increases by a similar amount as the gold prices on the spot market. One could even call this the most secure way of getting exposure to gold.
Setbacks: If an investor owns gold bullion, he/she will have to worry about the storage costs. Also, at the time of buying, an investor will have to pay a premium. At the time of selling, the investor might be charged fees depending on where the gold is sold.
Other options: Instead of owning physical precious metal, investors could look at exchange traded funds (ETFs) like the SPDR Gold Trust (ETF) (NYSEARCA:GLD). This ETF holds and tracks the price of physical gold. Through this, for a small management fee, investors don’t have to worry about storage or paying massive premiums to invest in gold.
2. Gold Mining Companies
If an investor is looking to invest in gold and make leverage returns to gold prices, and—at the same time—wants some security, gold mining companies could be for them.
Look at this, for example: if gold prices move from its current level of around $1,150 per ounce to $2,000 and, if you only own gold bullion, the gain will only be just about 74%.
Gold miners produce gold for a much cheaper price. For instance, Goldcorp Inc. (NYSE:GG) produces an ounce of gold at all-in sustaining costs of $815.00. If gold prices increase to $2,000 per ounce and the production costs remain the same, the company could be making massive profits. Obviously, this would reflect in its stock price. Mind you, this is not a recommendation, just an example of how mining companies could work for those looking to invest in gold.
Setbacks: As gold mining companies provide leverage gains, they come under fire as gold prices decline as well. When buying gold mining company stocks, investors also have to pay commissions to brokers.
Other options: Instead of owning just one mining company, investors could look into ETFs like Market Vectors Gold Miners ETF (NYSEARCA:GDX). This ETF holds several major mining companies. Through this, investors could get diversification.
3. Leverage Gold and Gold Miners’ ETFs
If an investor is looking to invest in gold and willing to take a significant amount of risk to make massive returns in the short term, they could look into leverage gold and gold mining company ETFs.
For example, look at the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT). This ETF follows the NYSEARCA Gold Miners Index. If this index increases by one percent on a given day, NUGT stock increases by three percent.
Setbacks: These sorts of ETFs shouldn’t be considered a long-term investment. They are only good for a short-term opportunity. In the long term, they could cause massive losses to the portfolio.